Long Island Key Person & Buy/Sell Insurance
By Insurance Suffolk Brokerage
Every business has at least one (or more) “priceless” or “invaluable” employee in their organization. Whether it is the owner, the CEO, a technical knowledge-champion or a top sales producer, the loss of said individual could mean severe financial hardship or even ruin for that company. This holds especially true for small to medium sized businesses where there are typically fewer of these “major players” in the organization. Luckily, there are two business life insurance products that exist which are designed to protect partners of a business and/or the company itself: Key Person life insurance and Buy/Sell life insurance.
What Is Key Person Life Insurance?
As the name implies, Key Person life insurance (also referred to as Key Man life insurance or Key Employee insurance) is a policy where the company is the beneficiary and covers the life (or lives) of “Key Personnel” in that organization. Some of the benefits of Key Man coverage include:
- – It can provide complete liquidity (paying death benefits to the business) in the event of a key employee’s unexpected death
- – May provide the business with tax-advantaged access to insurance policy cash values in times of need (e.g. the covered person resigns or quits)
Key Person protection can help an organization in a number of ways:
- – It can help with the cost of recruiting, hiring and training replacement employees
- – It can help strengthen a company’s credit rating
- – It can replace lost profits
- – It can pay survivor benefits
- – It can be used to buy back stock from the deceased person’s estate
- – Creates additional corporate surplus
- – Can be structured as an IRS Section 162 Executive Bonus Plan – Where a company is able to provide key employees with tax-advantaged funds for additional executive benefits… a fine way to attract and retain top talent in your organization
"Does our company require a Key Person policy?"
The best way to determine if your business needs corporate life insurance is to perform a risk analysis of the key employees in your organization. Meaning hypothetically, if the loss of CEO John Doe, or top sales producer Tom Smith would mean a collective $100 million loss to the company and the company does not have the means to absorb that amount of a loss, you may wish to consider a $50 million Key Person life insurance policy for the business covering those two lives. These numbers are completely arbitrary of course as every organization has their own unique situation.
Buy/Sell Life Insurance
Buy/Sell life insurance is a means of business protection where two to three partners take out life insurance policies on each other. With businesses that have more than three partners, the company itself can take out the policy on the partners (AKA: an Entity Purchase). Should one of the partners die, the policy is designed where the surviving partner buys out the deceased partner’s interest in the business. These policies are usually accompanied with a Buy/Sell Agreement that requires the surviving partner to use the death benefit of the policy to purchase the remainder of the business in the event of the partner’s death. Without this insurance, the deceased partner’s spouse now becomes the new partner of the business… someone that may not be business-savvy or that knows nothing about the business you are engaged in.
For more information or a free quote regarding Key Person life insurance, call Insurance Suffolk today to speak to a life insurance professional. We have relationships with top insurance companies in New York that provide Key Person protection for your business.